PM Narendra Modi’s gift: No income tax likely up to Rs 3 lakh

Finance minister Arun Jaitley may have some good news for the salaried class in the budget for 2014-15.

The government is learnt to be gearing up for an overhaul of India’s tax regime by considering a restructuring of tax slabs and increasing the income tax exemption limit from the existing Rs 200,000 to more than Rs 300,000 —a move that would leave more money in the hands of people.

A rejig in income tax slabs is also on the cards, the details of which are being currently examined.

At present, there are three tax slabs. Those with an income of less than Rs 2 lakh a year are exempt from paying taxes. Those earning between R2 lakh and R5 lakh annually are taxed at 10%, those between R5 lakh and R10 lakh at 20% while anybody earning more than R10 lakh pays a tax of 30%.

In addition, in last year’s budget ( 2013-14) the then finance minister P Chidambaram, for the first time, introduced an additional surcharge of 10% on “Relatively prosperous" persons with a taxable income of more than R1 crore — and there were supposedly only 42,800 of them in India

A rejig in tax slabs along with a hike in exemption limits will enhance people’s disposable income, which, in turn will boost consumption spending as well as savings.

The government is negotiating through a maze of thorny issues ahead of this year’s budget amid faltering demand and rising prices that have hit growth in the broader economy.

The government is examining whether some of the proposals of the draft Direct Taxes Code (DTC) Bill 2013 including a tax on “super-rich” can be introduced in this year’s budget, likely to presented in the second week of July, sources said.

The draft DTC Bill had proposed a higher 35% tax for the super-rich for those who earn more than Rs 10 crore a year, and a wealth tax on host of assets such as expensive paintings.

The draft had also proposed to reduce the age for tax exemption for senior citizens to 60 years from 65 years.

The Parliamentary Standing Committee on Finance that had examined the DTC Bill of 2010 had recommended raising the income tax exemption limit to Rs 3 lakh.